Reasons of Developing a Business Planc 4 writing business plan

Entrepreneurship and small business:
Writing a Business Plan
Muhammad Shafiq
forshaf@gmail.com
http://www.slideshare.net/forshaf
Book references:
• Entrepreneurship by Bruce R. Barringer
•Entrepreneurship by Hisrich

What Is a Business Plan?
• Entrepreneurs should understand what a business plan
is and what it isn’t. It isn’t a contract, an agreement, or a
budget.
Instead, it is a narrative description of a new business.
• Business Plan
• A business plan is a written narrative document that
describes what a new business plans to accomplish.
• Dual-Use Document
• For most new ventures, the business plan is a dual-purpose
document used both inside and outside the firm.
3

• The right time to develop the business plan is soon after
successful completion of “Feasibility Analysis”.
• It is a mistake to write a full business plan too early.
• The business plan must be substantive enough and have
sufficient details about the merits of the new venture to
convince the reader that the new business is exciting
and should receive support.
• Much of this detail is accumulated in the feasibility
analysis stage of investigating the merits of a potential
new venture.
4
What's right time to develop the Business Plan?

• Download the template of “feasibility analysis” from the
following URL;
• http://wps.pearsoned.com/wps/media/objects/5599/5733471/
Appendix_3_1.doc
• and perform full feasibility analysis of the idea of your startup
accordingly.
• Date of submission and presentation;
• 2nd Class after Mid Examination.
Assignment 1

Reasons of Developing a Business Plan
A Firm’s
founders &
Employees
Investors and
other external
stakeholders
• writing a business plan forces a firm’s founders to
intently study every aspect of their business.
• A clearly written business plan helps the employees
of a firm operate in a sync way and move forward
in a consistent and purposeful manner.
• to create a selling document for a company. It
provides a mechanism for a young company to
present itself to potential investors, suppliers,
business partners, key job candidates, and others.
• A firm’s business plan must make the case that the
firm is a good use of an investor’s funds or the
attention of others.

Guidelines for Writing a Business Plan
• To make the best impression a business plan should follow a
conventional structure, such as the outline for the business plan.
• Although some entrepreneurs want to demonstrate creativity,
departing from the basic structure of the conventional business
plan is usually a mistake.
• Typically, investors are busy people and want a plan where they
can easily find critical information.

• Software Packages
• There are many software packages available that employ an interactive,
menu-driven approach to assist in the writing of a business plan.
• Some of these programs are very helpful. However, entrepreneurs
should avoid a boilerplate plan that looks as though it came from a
“canned” source.

How long and detailed should it be?
• One of the most common questions that the writers of
business plans ask is, How long and detailed should it be?
The answer to this question depends on the type of
business plan that is being written.
There are three types of business plans, each of which has a
differentrule of thumb regarding length and level of detail.

Summary Plan:
10 to 15 pages and works best for companies that are very early
in their development and are not prepared to write a full plan.
The authors of a summary business plan may be asking for
funding to conduct the analysis needed to write a full plan (such
as a feasibility analysis).
Ironically, summary business plans are also used by very
experienced entrepreneurs who may be thinking about a new
venture but don’t want to take the time to write a full business.
12

Full business plan:
Typically 25 to 35 pages long.
Plan spells out a company’s operations and plans in much more
detail than a summary business plan.
A business plan for an investor.
Detailed information, such as the résumés of the founders or
pictures of product prototypes, can appear in an appendix.
13

Operational business plan:
Primarily for an internal audience.
An operational business plan is a blueprint for a company’s
operations.
40 and 100 pages in length.
An effectively developed operational business plan can help
a young company provide guidance to operational
managers.
14

Guidelines for Writing a Business Plan
• Recognizing the Elements of the Plan May Change
• It’s important to recognize that the plan will usually change while
written.
• New insights invariably emerge when an entrepreneur or a team
of entrepreneurs immerse themselves in writing the plan and start
getting feedback from others.

• The confidentiality of a firm’s business plan should be
protected to avoid the possibility of the plan falling into the
hands of a competitor.
• Many firms restrict the number of copies of their business
plan that can be made.
• Most companies stamp the front page of their business
plans “Confidential—Do Not Reprint without Permission.”
17

Outline of Business Plan
• Outline of Business Plan
• A suggested outline of a business plan is shown on the next
several slides.
• Most business plans do not include all the elements
introduced in the sample plan; we include them here for
the purpose of completeness.
• Each entrepreneur must decided which elements to
include in his or her plan.

Exploring Sections of Business Plan
• Cover Page and Table of Contents
• The cover page should include the name of the
company, its address, its phone number, the date, and
contact information for the lead entrepreneur.

A cover letter should accompany a business plan sent to an
investor or other stakeholders through the mail.
The cover letter should briefly introduce the entrepreneur
and clearly state why the business plan is being sent to the
individual receiving it.
it is a poor strategy to obtain a list of investors and blindly
send the plan to everyone on the list.
Instead, each person who receives a copy of the plan should
be carefully selected on the basis of being a viable investor
candidate.
23

Section 1: Executive Summary
• Executive Summary
• The executive summary
is a short overview of the
entire business plan
• It provides a busy reader
with everything that
needs to be known
about the new venture’s
distinctive nature.
• An executive summary
shouldn’t exceed two
single-space pages.

Key Insights
• In many instances an investor will ask for a copy of a firm’s
executive summary and will ask for a copy of the entire plan
only if the executive summary is sufficiently convincing.
• The executive summary, then, is arguably the most important
section of a business plan.
• If the new venture is seeking financing or funding, the
executive summary should state the amount of funds being
requested.
Section 1: Executive Summary

Section 2: The Business
• The most effective way to
introduce the business is to
describe the opportunity the
entrepreneur has identified– that
is, the problem to solve or the
need to be filled–and then
describe how the business plans
to address the issue.
• The description of the
opportunity should be followed
by a brief history of the company,
along with the company’s mission
statement and objectives.
A business model describes that how an organization creates, delivers, and captures value.

American multinational retail corporation that runs
chains of large discount department stores and
warehouse stores.
The company is the world's largest public corporation,
according to theFortune Global 500 list in 2014,
the biggest private employer in the world with over two
million employees, and is the largest retailer in the
world.
Walmart remains a family-owned business, as the
company is controlled by the Walton family, who own
over 50 percent of Walmart.It is also one of the world's
most valuable companies.
28

Walmart has over 11,000 stores in 27 countries, under 55
different names.
The term "Walmarting" derives
from Walmart's business practices, which effectively apply
optimization concepts from logistics, purchasing
and finance to achieve and maintain low prices. More
generally, "Walmarting" refers to the spread of Wal-Mart's
business model to other big-box retailers.
29

A Simple But Powerful Idea: Minimize the “Bad I” -
Inventory
Walton figured out that most of the costs gets added after the
product leaves the factory and moves through the supply chain:
Mfg.  Wholesaler  Retailer
• 20% - 30% of retail price spent on keeping inventory in
warehouses. Walton eliminated the wholesaler and instituted
JIT inventory practices.
 JIT Inventory Program Reduced Carrying Costs for Both Wal-Mart
AND Its Suppliers
Wal-Mart’s Cost of Goods : 5% - 10% Less Than Competitors
Walton recognized early on that timely information is the key to
maximizing sales and minimizing costs. The better your information
about what’s selling and what’s not, store by store, the better you can
perform.

Section 3: Management Team
• Management Team
• The management team of a new
venture typically consists of the
founder or founders and a handful
of key management personnel.
• The material in this section should
include a brief summary of the
qualifications of each member of the
management team, including his or
her relevant employment and
professional experiences, significant
accomplishments, and educational
background.

Section 3: Management Team
Management Team
Key Insights
• This is a critical section of a
business plan.
• Many investors and others who
read the business plan look first at
the executive summary and then go
directly to the management team
section to assess the strength of the
people starting the firm.
• If the team doesn’t “pass muster,”
most investors won’t read further.
• “skin in the game.”

Section 4: Company Structure, Ownership, and Intellectual
Property
• This section should begin by
describing the structure of the
new venture, including the
reporting relationships among
the top management team
members.
• The next part of the section
should explain how the firm is
legally structured.
• The third part of this section
should discuss the intellectual
property the firm owns,
including patents, trademarks,
and copyrights.
33

Section 4: Company Structure, Ownership, and
Intellectual Property
Key Insightskey point
• A frequent source of tension in new ventures, particularly if
two or more founders start out as “equals,” is a failure to
delineate areas of responsibility and authority.
• To demonstrate that the founders have sorted out these issues,
an organizational chart should be included.
• An organizational chart is a graphic representation of how
authority and responsibility are distributed within a company.

Section 5: Industry Analysis
• Industry Analysis
• This section should being by
describing the industry the
business will enter in terms of its
size, growth rate, and sales
projections.

Industry Analysis
Key Insights
• It is important for a firm to think carefully
about the industry in which it will compete and
the target market it will pursue in developing
its business plan.
• Recall Red Bull case study, a company that
makes energy drinks.
• Most startups do not service their entire
industry. Instead, they focus on servicing a
specific (target) market within the industry.
• The more a startup knows about the consumers
in its target market, the more it can tailor its
products or service appropriately
Section 5: Industry Analysis

Section 6: Marketing Plan
• This marketing plan should
immediately follow the industry
analysis and should provide details
about the new firm’s products or
services.
• After reading this section of the plan,
an investor should be confident that
the firm’s overall approach to its
target market and its product
strategy, pricing strategy, channels of
distribution, and promotional
strategy are in sync with one another
and make sense.

Marketing Plan
Key Insights
• The best way to describe a startup’s
marketing plan is to start by
articulating its marketing strategy,
positioning, and points of
differentiation, and then talk about
how these overall aspects of the
plan will be supported by price,
promotional mix, and distribution
strategy.
Section 6: Marketing Plan

Section 7: Operations Plan
• Outlines how your business will be run its
day to day affairs and how your product
or service will be produced.
• A useful way to illustrate how your
business will be run is to describe it in
terms of “back stage” (unseen to the
customer) and “front stage” (seen by the
customer) activities.
• Any risks or regulations pertaining to the
operations of the firm should be
disclosed, such as non-routine regulations
regarding waste disposal and worker
safety.

Section 7: Operations Plan
Operations Plan
Key Insights
• Your have to strike a careful balance
between adequately describing this
topic and providing too much
detail.
• As a result, it is best to keep this
section short and crisp.

Section 8: Financial Plan
• Demonstrate the financial viability
of the business
• Begin by explaining the funding
needed during the next three to five
years along and how the funds will be
used.
• Describe where the funds will come from
(e.g., self, family, loans, investors)
• Include realistic financial projections
• How fast you expect to go through the funds
before turning a profit (called the “burn rate”)
• When do you expect to turn a profit and at what
rate do you expect profits to grow?
• In your appendices, you include supporting
and detailed financial statements to back
up this discussion.
41

Section 8: Financial Plan
Financial Projections
Key Insights
• Having completed the earlier sections of the
plan, its easy to see why the financial
projections come last.
• They take the plans you’ve developed and
express them in financial terms.
• The timeframe expected for investor exit.
• Although it may seem odd to talk about
selling a company at the time it is being
founded, it is just good planning to have an
exit strategy in mind.

Section 9: Critical Risk Factor
 Although a variety of potential critical
risks may exist, a business should tailor
this section to depict its truly critical risks.
• One of the most important things that a
business plan should convey to its readers
is a sense that the venture’s management
team is on the ball and understands the
critical risks facing the business.
43
One start-up that did not assess its critical risk effectively was Webvan, one
of the most spectacular failures during the dot-com bust. While there are
many reasons that firms fail, Webvan’s failure was due largely to an overly
ambitious business plan, and an apparent absence of an awareness of the
critical risk factors confronting the firm. A brief overview of Webvan and the
reasons it failed are provided in the “What Went Wrong” feature.

• Webvan was one of the
biggest flameouts of the
dot-com era, losing over $1
billion of its
investors’money. One has to
wonder how sound
Webvan’s business plan was
to begin with.
44

Webvan was an online grocery store that promised to revolutionize the grocery business.
The company, which was launched in the late 1990s, delivered grocery store items to
customers’ homes within a 30-minute window of their choosing. The basic idea behind
Webvan’s business plan was that the company could lower the costs of selling groceries by
storing and sorting groceries in huge warehouses and making home deliveries rather than
incurring the costs involved with running traditional grocery stores. The company reasoned
that consumers would flock to its service because it relieved them of the time-intensive
task of grocery shopping. The strength of its business idea allowed Webvan to get off to a
fast start. In fact, Webvan attracted more venture capital funding than any other Internet
company, other than Amazon.com. In 1999, Webvan went public, raising $375 million. At its
peak, it offered service in ten US markets. The company had hoped to expand to 26 cities
While Webvan was popular, the money spent on infrastructure far exceeded sales growth,
and the company eventually ran out of cash. Webvan placed a $1 billion order with
engineering company Bechtel to build its warehouses in early 2000s and bought a fleet of
delivery trucks. Webvan's legacy consists of thousands of colored plastic shipping bins, now
used for household storage and their re-painted distinctly-shaped vans seen in the San
Francisco area years later. Less then 2 years later, Webvan went broke, laying off 2,000
employees and losing all of its investors’ money. What went wrong?
45

• The primary mistake that Webvan made was that the company’s growth far
outstripped the demand for its service. Rather than patiently building its
infrastructure to accommodate growing demand, Webvan rushed ahead with
its expansion plans. Apparently, the obvious risk of lower-than-expected
consumer demand wasn’t accounted for in Webvan’s business plan.
Everything about Webvan’s operations was built to accommodate scale, so
when the lower-than-expected demand materialized, it worked to Webvan’s
disadvantage in multiple ways. For example, in some cases Webvan drivers
were driving 30 miles to make a single delivery. The end result was that the
company simply ran out of money, and its investors had no appetite to invest
additional funds. As a postscript, although the online grocery market is still in
its infancy, it does have successes. HomeGrocer, a similar company, started
operating the year before Webvan. It went public in March 2000 and, like
Webvan, was losing large amounts of money. On 26 June 2000, Webvan
bought out HomeGrocer. In June 2008, CNET named Webvan the largest dot-
com flop in history,
46

Appendix
• Any material that does not easily
fit into the body of a business
plan should appear in an
appendix. Examples of materials
that might appear in the appendix
include:
• Resumes of the top management
team members, photos or diagrams
of product or product prototypes,
certain financial data, and market
research projections.
47

• Putting It All Together In evaluating and reviewing the completed
business plan, the writers should put themselves in the reader’s
shoes to determine if the most important questions about the
viability of their business venture have been answered. Following
table lists most important questions a business plan should answer.
It’s a good checklist for any business plan writer.
48

Presenting the Business Plan to Investors
If the business plan successfully elicits the interest of a
potential investor, the next step is to meet with the investor
and present the plan in person.
• The first rule in making an oral presentation is to follow directions.
If you’re told you have 15 minutes, don’t talk for more than the
allotted time.
• The presentation should be smooth and well-rehearsed.
• The slides should be sharp and not cluttered.
• Questions and Feedback to Expect from Investors
• The smart entrepreneur has a good idea of the questions that will
be asked, and will be prepared for those queries.

Presenting the Business Plan to Investors
Twelve PowerPoint Slides to Include in an Investor Presentation
1. Title Slide
2. Problem
3. Solution
4. Opportunity and target market
5. Technology
6. Competition
7. Marketing and sales
8. Management team
9. Financial projections
10. Current status
11. Financing sought
12. Summary

Application Questions
1. Brad Jones is the chief financial officer of an electronic
games start-up venture located in San Diego. His firm has
decided to apply for venture capital funding and needs a
business plan. Brad told Phil Bridge, the firm’s CEO, that
he could have the plan done in 2 weeks. Phil looked at
Brad with surprise and said, “Wouldn’t it be better if the
entire management team of our firm worked on the plan
together?” Brad replied, “The only reason we’re writing
the plan is to get funding. Getting a lot of people involved
would just slow things down and be a waste of their
time.” Do you agree with Brad? Why or why not?
51

2. Imagine you just received an e-mail message from a
friend. The message reads, “Just wanted to tell you that I
just finished writing my business plan. I’m very proud of
it. It’s very comprehensive and is just over 100 pages.
The executive summary alone is 9 pages. I plan to start
sending it out to potential investors next week. Do you
have any words of advice for me before I start sending it
out? Be honest—I really want to get funding.” How
would you respond to your friend’s request for feedback?
52

56
New Coke
Often cited as the ultimate example of
one of the most notorious product
flops – and brand missteps – of all
time, New Coke was launched in the
mid-1980s by Coca Cola in an attempt
to help the soda company stay ahead
of competitors during the so-called
“cola wars.” Instead, it just annoyed
consumers.
“The tacky way it was introduced
made it seem as though the regular
Coke drinkers mattered little to the
company and a boycott was started,”.
New Coke was abandoned within a few
weeks and the original version was
then resurrected as “Classic Coke.”

Related Articles
3. Moving beyond the business plan in enterprise education
4. Business plans for new or small businesses: paving the path to
success.
57

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